How the Destinies of Motorola and Palm Grew Apart

By JENNA WORTHAM

Published: April 30, 2010

For much of this decade, the fates of Palm and Motorola were intertwined. Both were early innovators in the mobile phone industry, but neither had had a hit in years.

Motorola, which had invented cellphones and found great success with the Razr, and Palm, which pioneered the hand-held computer category, watched more nimble competitors lure away consumers with flashier, sleeker and more functional smartphones.

But their paths have now sharply diverged.

On Wednesday, Hewlett-Packard, the PC giant, announced it would buy the loss-ridden Palm and use its technology across a range of H.P. devices. On Thursday, the similarly loss-ridden Motorola, however, announced it made an unexpected profit during its first quarter, beating Wall Street expectations.

The reason for the different outcomes, in a word, may be Android, Google's operating system for mobile devices. ''Motorola did quite well by jumping on Android's bandwagon,'' said Roger Entner, a mobile analyst with Nielsen. ''Whereas Palm went the route of having their own operating system and launching that with Sprint, right against the iPhone.''

''Last year, we weren't shipping any smartphones,'' Sanjay Jha, Motorola's co-chief executive, said in an interview. ''Our brand is recovering very well.''

Mr. Jha said Motorola shipped 2.3 million smartphones in the quarter and that the company expected to ship 12 million to 14 million handsets by year-end. The Schaumberg, Ill., technology company reported net income of $69 million, or 3 cents a share, compared with a loss of $231 million, or 13 cents a share, in the same period a year earlier. Revenue of $5 billion for the first quarter was 6 percent less than the year-ago quarter, but the smallest decline in three years.

For the last two years the company has been working to reverse its fortunes by designing a product that catches the attention of consumers. As sales of the Razr dropped sharply by 2006, it learned that consumers were fickle and the cellphone business was as susceptible to tidal trends as the fashion industry. What's in vogue one moment can be outdated the next.

Analysts and industry experts say the company's efforts now appear to be paying off. Mr. Jha said Motorola's early adoption of Android helped the company streamline its efforts, which contributed to its comeback. ''When we started this turnaround, we had six mobile operating systems and 23 platforms,'' said Mr. Jha. ''We were able to reduce that to one and it allowed all of our creative energies on one platform.''

Motorola has released or announced Android-powered smartphones with each of the major carriers in the United States. The company currently has eight Android phones on the market and says it plans to deliver more than 20 by the end of the year.

Motorola got its big boost by releasing a slim, angular smartphone called Droid. ''Verizon very much wanted to have a solution to cope against Apple and we were very keen to have success,'' said Mr. Jha.

In the last few months, Android's presence has grown to about 9 percent of new smartphones sold, according to comScore. It still lags behind the market share of Microsoft with 15.1 percent, Apple with 25.4 percent and Research In Motion with 42.1 percent. But developers are beginning to follow suit. At Google's last count, the Android Marketplace housed 38,000 applications. (Apple's App Store has 185,000 apps.)

But Mr. Jha said Motorola's comeback went beyond Android. ''There's a point of view that all that matters is the operating system,'' said Mr. Jha. ''But consumers care about what features a phone has, what it can do and where they can get it. At Motorola, we have some better capabilities than others in those areas.''

In particular, analysts say that Motorola's longstanding partnerships with wireless companies have helped give it a leg up with its Android portfolio.

''Motorola has always maintained good relationships with Verizon, AT&T and Sprint and it paid off,'' said Mr. Entner.

Palm, on the other hand, struggled to sell its small suite of sleek smartphones, the Pre and the Pixi.

''The idea at Palm was that if you take great technology it leads to great sales,'' said Philip Cusick, a wireless industry analyst at Macquarie Research. Mr. Cusick described the approach as ''very Apple-esque.''

Palm was standoffish to tech enthusiasts, and its mass-market advertising, which featured a wan girl spouting New Age philosophy, struck many as peculiar. By joining with a smaller carrier in the United States, Sprint, to release its first new product, Palm hindered its makeover effort, analysts said. It didn't help that Palm released the Pre as the same time Apple announced its new iPhone. ''It took wind right out of them,'' Mr. Cusick said.

''What could have turned Palm into a household name turned into a massive cash drain,'' he said. ''The advertising was terrible. They had no reception and consumers didn't respond. Even now, there are still a couple thousand phones just sitting in the stores.''

Even after Palm branched out to Verizon, it was too late. Verizon was also carrying Motorola's Droid and it promoted that model more heavily.

But Mr. Cusick cautioned that the competition for consumers buying smartphones would only get fiercer. HTC, a prominent Taiwanese cellphone maker, has released the Incredible, Verizon's successor to the Droid. It is widely expected that Apple will announce its fourth-generation iPhone in June. (Apple will not confirm that any announcement is forthcoming, although a prototype of the phone was found in a bar and widely publicized.)

''Motorola is at the mercy of a lot of external forces, like the carriers and Google. As great a job as they do, they don't control their destiny,'' said Mr. Cusick.